Debunking The Myths of Stock-Market Investing Part 2
People have a lot of misconceptions about stock-market investing. Most of the time, because of these misconceptions, they end up not investing in the stock market.
Part Two
In the first part of this series, I discussed the top 3 myths in stock-market investing and discussed these myths, probably, were the reasons people don’t invest in the stock market. I will continue to discuss the next three.
Myth #4: The stock market is manipulated
This is my brother’s favorite excuse. I don’t blame him. The truth is that, despite strict regulations, stock manipulations happen now and in the past in stock markets all over the world. However, note that if you study the stock manipulations that have happened in history, you discover these only refer to individual stocks and not the entire market. Also, most are stocks of companies seeming to pop out of nowhere, have little or no history of profitability and still, people buy them based on rumors. So even with these instances of stock manipulations does not mean the entire stock market is manipulated. The manipulations happened to a number of individual stocks and stock exchanges all over the world that have taken action to stop the manipulation. They also installed measures to prevent future manipulations from happening. Besides, reports that a country’s stock market is manipulated are not good for the market of that country. So each country’s stock exchange will do their best to prevent manipulations.
Myth #5: Only people who have insider’s information will succeed in the stock market
Just like stock-market manipulations, trading in the stock market with insider’s information is a reality. It happened before and it will happen again. However, only a few individuals have done this. Stock exchanges all over the world have very strict rules on insider trading. In highly industrialized nations, stock trading using insider’s information has been successfully prosecuted. It is true that some people who invest or trade in stocks got rich through illegally acquired insider’s information, but these are only a handful of people and some of them have been successfully prosecuted. There are hundreds, if not thousands, of individuals who have been successful in their stock-market endeavors without using insider information. Publicly listed companies usually provide enough information and disclosures to the public on corporate activities that affect stock prices, so there is no need for insider information. Warren Buffett, the world’s greatest stock-market investor has this to say about insider information: “With enough inside information and a million dollars, you can go broke in a year.” If Warren Buffett does not need inside information to get rich in investing in stocks, neither do you.
Myth #6: Investing in stocks is merely a calculated gamble
To gamble is to take a risky venture or to make a risky act for possible monetary gain. Unlike in sports and other games, where the outcome of the game is controlled by the person playing the game, in gambling the outcome is pure chance or luck. There are two elements in gambling, risk and sheer chance. This is very different from real stock-market investing. Unlike gambling, your performance in the stock market is not left to pure chance or luck. You have control over what stocks to buy and at what price. You study if a company is worth buying and make a judgment if its management can deliver. If you approach the stock market from a business perspective, you are engaging in a business, and being in business is never gambling. The only people gambling in the stock market are those who do not study the companies they are putting their money in. These people do not care about the ins and outs of the business the stock represents. They just bet on the fact that if the price goes up and keeps on going up, they then keep waging bets on the company and leave it up to chance or sheer luck that, somehow, the price will keep going up and make a killing. What they are doing is very risky, indeed. They rely purely on the sentiment of other investors, which is very unreliable. For these people stocks are cards, chips, dice or pieces of the game that you play around with. The stock market for them is the world’s largest casino.
Zigfred Diaz is a registered financial planner of RFP Philippines from Cebu City.
Source: http://www.businessmirror.com.ph/2016/07/18/debunking-the-myths-of-stock-market-investing-2/
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